M/S. KIRAN INDUSTRIES, MUMBAI V. I.T.O. 18(2)(3), MUMBAI

ITA 783/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78627 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 03-04-2014
• Assessment Year: 1999-2000
• Appeal Filed On: 28-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASHOK SURI
• Assessee Lawyers: K SHIVRAMRAHUL HAKANI
• Keywords: Business income; Depreciation; Bad and doubtful debts; Notional interest

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI . . , . , ! BEFORE SHRI I.P. BANSAL, JM AND RAJENDRA, AM ./ I.T.A. NO.783/MUM/2011 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 1999-2000 M/S.KIRAN INDUSTRIES, 246, A-Z INDUSTRIAL ESTATE, G.K.MARG, LOWER PAREL, MUMBAI 400 013. ' ' ' ' / VS. THE INCOME TAX OFFICER 18(2)(3), MUMBAI. $ ./ % ./ PAN/GIR NO. : AAAFK 1527E ( $& / APPELLANT ) .. ( '($& / RESPONDENT ) $& ) / APPELLANT BY: S/SHRI K.SHIVRAM/RAHUL HAKANI '($& * ) / RESPONDENT BY : SHRI ASHOK SURI ' * +, / DATE OF HEARING : 03/04/2014 -.# * +, / DATE OF PRONOUNCEMENT : 03/04/2014 / / O R D E R PER I.P.BANSAL,J.M: THIS APPEAL IS FILED BY THE ASSESSEE. IT IS DIRE CTED AGAINST ORDER PASSED BY LD. CIT(A)-29,MUMBAI DATED 26/11/2010 FOR ASSESSMEN T YEAR 1999-2000. GROUNDS OF APPEAL READ AS UNDER: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW: 1 . RE-OPENING ASSESSMENT U/S. 147/148- A. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTIO N OF THE AO IN RESPECT OF COMPLETING THE ASSESSMENT OF THE RE-OPENING PROCEED INGS U/S.144 R.W.T.S. 147/148, ALTHOUGH THE SAME IS BAD IN LAW SINCE THE RE-OPENIN G HAS BEEN DONE ON 30-03-06, AFTER THE EXPIRY OF 4 YEARS FROM THE END OF THE ASS ESSMENT YEAR, I.E. 3 1-03-04. B. THE LEARNED CTT(A) ERRED IN CONFIRMING THE REASS ESSMENT AND THE EX-PARTE ORDER PASSED BY THE AO, ALTHOUGH THE REASONS FOR RE-OPENI NG WERE NOT FURNISHED BY THE ./ I.T.A. NO.783/MUM/2011 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 1999-2000 2 LEARNED AO AND THE ASSESSEE WAS NOT GIVEN AN OPPORT UNITY OF BEING HEARD, BEFORE THE AO 2. BUSINESS INCOME OR INCOME FROM HOUSE PROPERTY - A. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDIT ION OF RS. 8,35,200/- AS INCOME FROM HOUSE PROPERTY. B. THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE SUBMISSION OF THE APPELLANT, THAT NO A MOUNT WAS CHARGEABLE UNDER THE HEAD, INCOME FROM HOUSE PROPERTY. C. WITHOUT PREJUDICE TO (A) AND (B), THE LEARNED CI T(A) ERRED IN CONFIRMING THE ESTIMATE OF ALV AT RS.8,35,200/- AND FAILED TO TAKE INTO CONSIDERATION THAT THE AMOUNT OF ALV SHOULD BE RESTRICTED ONLY TO THE MUNI CIPAL RATABLE VALUE OF THE PROPERTY IN QUESTION AND CANNOT BE MADE ON ANY OTHE R ESTIMATE BASIS. D. WITHOUT PREJUDICE TO THE ABOVE, THE ESTIMATED IN COME SHOULD BE CHARGEABLE TO TAX UNDER THE HEAD BUSINESS INCOME: 3. AGENCY COMMISSION - RS. 7,500/- THE LEARNED CIT(A) AND AO HAVE ERRED IN DISALLOWING THE AGENCY COMMISSION WITHOUT SUBSTANTIATING THE REASONS FOR THE SAME. 4. BAD DEBT & BALANCES WRITTEN OFF- RS. 4,05,307/- THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOW ANCE OF BAD DEBT MADE BY THE AO ALTHOUGH ALL THE DETAILS ASKED FOR WERE SUBMITTE D BEFORE HIM 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D THE GROUNDS OF APPEAL AT OR BEFORE THE HEARING OF THE APPEAL. 2. GROUND NO.1 & 3 WERE NOT PRESSED, THEREFORE, THE Y ARE DISMISSED BEING NOT PRESSED. 3. SO FAR AS IT RELATES TO GROUND NO.2, THE SAME WA S STATED TO BE COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y 1998-99, WHICH IS AN ORDER DATED 28/1/2011 IN ITA NO.1360/MUM/2004, THE COPY OF THE SAID ORDER WAS PLACED ON THE FILE AND WAS ALSO GIVEN TO LD. DR . SIMILAR GROUND WAS RAISED BY THE REVENUE AND IT WAS DECIDED BY THE TRIBUNAL A S UNDER: 7. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A), ASSESSEE PREFERRED AND APPEAL BEFORE US AND RAISED THE FOLLOWING GROUNDS: 1. THE LEARNED CIT(A) WAS NOT JUSTIFIED IN CONFIRM ING THE ADDITION OF RS. 8,35,200/- AS INCOME FROM HOUSE PROPERTY. ./ I.T.A. NO.783/MUM/2011 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 1999-2000 3 2. THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THE FAC TS AND CIRCUMSTANCES OF THE CASE AND THE SUBMISSIONS OF THE APPELLANT TH AT NO AMOUNT WAS CHARGEABLE UNDER THE HEAD, INCOME FROM HOUSE PROPE RTY IN RESPECT OF THE SAID PROPERTY. 3. WITHOUT PREJUDICE, EVEN THE ESTIMATE ADOPTED WHI LE COMPUTING THE SAID INCOME FROM HOUSE PROPERTY IS EXCESSIVE AND UNREASO NABLE. 8. THE LEARNED COUNSEL FOR THE ASSESSEE MS. MRUGAKS HI JOSHI VEHEMENTLY ARGUED THAT THE LOWER AUTHORITIES HAD ERRED IN MAKI NG THE ADDITION ON THE GROUND THAT THE AMOUNTS WERE CHARGEABLE UNDER THE HEAD IN COME FROM HOUSE PROPERTY. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION IN THE CASE OF POPATLAL FULCHAND VS ACIT (2009) TIOL 550 ITAT MUM WHEREIN I T HAS BEEN HELD AS FOLLOWS: PROPERTY OWNED BY INDIVIDUALS AND USED BY A FIRM, WITHOUT PAYING ANY RENT, WHOSE PARTNERS ARE HUFS OF THE INDIVIDUAL S OWNING THE PROPERTY CAN BE SAID TO BE USED FOR THE PURPOSES OF BUSINESS BY SUCH INDIVIDUALS AND CONSEQUENTLY ITS NOTIONAL INCOME IS NOT CHARGEABLE. 9. THE ASSESSEE ALSO RELIED ON THE DECISION OF HIG H COURT OF DELHI IN THE CASE OF CIT VS ASIAN HOTELS 215 CTR 84 (DEL) WHEREIN IT HAS BEEN HELD AS FOLLOWS: SECTION 23(1)(A) IS RELEVANT FOR DETERMINING THE I NCOME FROM HOUSE PROPERTY AND CONCERNS DETERMINATION OF THE ANNUAL L ETTING VALUE OF SUCH PROPERTY. THAT PROVISION TALKS OF THE SUM FOR WHI CH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR. THIS CONTEMPLATES THE POSSIBLE RENT THAT THE PROPERTY MIGHT FETCH AND NOT CERTAINLY THE INTEREST IN FIXED DEPOSIT THAT MAY BE PLACED BY THE TENANT WITH THE LANDLORD IN CONNECTION WITH THE LETTING OUT OF SUCH PROPERTY. IT MUST BE REMEMBERED THAT IN A TAXING STATUTE IT WOULD BE UNSAFE FOR THE COUR T TO GO BEYOND THE LETTER OF THE LAW AND TRY TO READ INTO THE PROVISION MORE THA N WHAT IS ALREADY PROVIDED FOR. THE ATTEMPT BY LEARNED COUNSEL FOR T HE REVENUE TO DRAW AN ANALOGY FROM THE WEALTH TAX ACT, 1957 IS ALSO TO NO AVAIL. IT IS AN ADMITTED POSITION THAT THERE IS A SPECIFIC PROVISION IN THE WEALTH TAX ACT WHICH PROVIDES FOR CONSIDERING OF A NOTIONAL INTEREST WHE REAS SEC. 23(1)(A) CONTAINS NO SUCH SPECIFIC PROVISION. 10. THE LEARNED COUNSEL FOR THE ASSESSEE FILED THE PAPER BOOK AND AT PAGE 44 AND 45 IT IS CLEARLY STATED AS FOLLOWS: THIS IS REFERENCE TO OUR PROPERTY SITUATED AT 398/ 1, ANGERIPALAYAM-TIRUPUR WHICH HAS BEEN OCCUPIED BY YOU AS CARE TAKER UNDER THE MOU DT. 25.3.1997. WE HEREBY CONFIRM THAT YOU HAVE HANDED OVER THE VAC ANT POSSESSION OF THE ABOVE PREMISES TODAY (I.E. 15.6.1998) AS PER OU7R V ERBAL MUTUAL UNDERSTANDING WHICH HAS BEEN AGREED AS UNDER: 1) THE TOTAL DEPOSIT OF RS. 75,00,000/- TO BE REPAID A S FOLLOWS: A) ON 15.6.1998 RS. 40,00,000/- B) BALANCE BY 31.3.1999 ./ I.T.A. NO.783/MUM/2011 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 1999-2000 4 11. THE LEARNED COUNSEL ALSO FILED THE BALANCE SHEE T AS ON 31.3.1996 WITH SCHEDULES FOR ASSESSMENT YEARS 1996-97 TO 1999-2000 . WE FIND THAT THE ASSESSEE HAD TO BORROW RS. 75,00,000/- LACS FROM THEIR ASSO CIATE CONCERN FOR A SHORT PERIOD AND IN CONSIDERATION THEREOF ALLOWED THEM TO USE TH E SAID BUILDING ONLY FOR A PERIOD OF ONE YEAR. THIS IS ALSO BEEN EXPLICITLY PROVIDE IN THE MEMORANDUM OF UNDERSTANDING ARRIVED BETWEEN ASSOCIATES. THE ASSES SEE FIRM ALSO MADE THE ASSOCIATE CONCERN TO PAY FOR THE MAINTENANCE AND UP KEEP AND OUTGOINGS. WE ALSO FIND THAT WITHOUT SUCH AN ARRANGEMENT WITH ASSESSEE WOULD HAVE HAD TO BORROW FUNDS FROM OUTSIDERS AND FINANCIAL INSTITUTIONS. HE NCE IT WAS A PRUDENT BUSINESS DECISION TO ALLOW THE SISTER CONCERN TO USE OF ITS PREMISES. THE ASSESSEE WAS ABLE TO REDUCE ITS LOSSES AND GET BETTER FINANCIAL RESULTS . FROM PAGE 45 OF THE PAPER BOOK IT IS CLEAR THAT THE INTENTION OF THE ASSESSEE WAS FOR THE PURPOSE OF BUSINESS AND NOT TO EARN RENTAL INCOME. HENCE WE ARE OF THE OPINION THAT THE INCOME IS TO BE TAXED AS BUSINESS INCOME AND CONSEQUENTLY DEPRECIATION OF TH E BUILDING WHICH WAS REGULARLY CLAIMED BY THE ASSESSEE FIRM BARRING THE YEAR UNDER APPEAL SHOULD ALSO BE ALLOWED. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 28 TH DAY OF JANUARY, 2011. 3.1 IT WAS SUBMITTED THAT FACTS AND CIRCUMSTANCES O F THE CASE FOR THE PRESENT YEAR ARE SAME. LD. DR DID NOT DISPUTE SUCH CONTENT ION OF THE ASSESSEE. THEREFORE, RESPECTFULLY FOLLOWING THE AFOREMENTIONE D ORDER WE HOLD THAT THE INCOME IS LIABLE TO BE ASSESSED AS BUSINESS INCOME AND DEPRECIATION IS ALLOWABLE TO THE ASSESSEE. ACCORDINGLY, GROUND NO.2 IS ALLOW ED. 4. SO FAR AS IT RELATES TO GROUND NO.4, THE AMOUNTS REFERRED IN GROUND NO.4 CONSIST OF TWO AMOUNTS. ONE IS RS.1,90,971/- AND T HE OTHER AMOUNT IS RS.2,14,336/-. THE AMOUNT OF RS.2,14,336/- RELATES TO BANK MARGIN GIVEN FOR GUARANTEE. THIS DISALLOWANCE HAS BEEN UPHELD BY LD . CIT(A) ON THE GROUND THAT ASSESSEE DID NOT FILE REQUISITE DETAILS. BEFORE U S ALSO NO FURTHER DETAILS COULD BE FILED. THEREFORE, TO THIS EXTENT THE DISALLOWANCE IS UPHELD. 4.1 IN RESPECT OF ANOTHER SUM OF RS.1,90,971/- LD. AR REFERRED TO PAGES 66 TO 69 OF THE PAPER BOOK. IT WAS SUBMITTED THAT IN THE COURSE OF ITS BUSINESS ACTIVITY SAID AMOUNT HAS BECOME IRRECOVERABLE AND, THEREFOR E, WRITTEN OFF IN THE YEAR UNDER CONSIDERATION. THUS, IT WAS PLEADED THAT THE SAID AMOUNT IS ALLOWABLE AS BAD DEBT. HE SUBMITTED THAT DISALLOWANCE WAS UPHEL D BY LD. CIT(A) ON THE GROUND THAT EVEN DURING THE COURSE OF APPELLATE PRO CEEDINGS THE ASSESSEE HAD REMAINED UNABLE TO ESTABLISH THAT WHEN THIS LIABILI TY WAS OFFERED TO TAX. HE ./ I.T.A. NO.783/MUM/2011 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 1999-2000 5 SUBMITTED THAT DETAILS FILED IN THE PAPER BOOK AT P AGES 66 TO 69 WILL CLEARLY REVEAL THAT THE PAYMENT RELATES TO SUPPLY OF GOODS MADE TO JOGTEX YEAL SOLDES WITH WHOM THE FIRM HAS DEALT WITH PRIOR TO 1992-93. HE ALSO DREW OUT ATTENTION TOWARDS REPLY FILED BY THE ASSESSEE BEFORE AO, COPY OF WHICH IS FILED AT PAGES 39 TO 42 OF THE PAPER BOOK, WHICH IS A LETTER DATED 15 /10/2008. FOLLOWING REPLY WAS SUBMITTED. BAD DEBTS: ASSESSED FIRMS BOOK OF A/C. ARE AUDITED. THEY HAVE WRITTEN OFF BAD-DEBT OF RS.1,90,971/-. THE BAD DEBTS RELATES TO OLD EXPORT DEBTOR FROM FRANCE M/S. JOGTEX YEAL SOLDES WITH WHOM ASSESSED FIRM WAS DOI NG BUSINESS SINCE PRIOR TO 1992-1993. AS PER COPY OF A/C. OF M/S. JOGTEX YEAL SOLDES FROM 1993 ONWARD, THEY HAVE GIVEN BUSINESS OF MORE THAN RS.1,90,971/- WHICH IS WRITTEN OFF AS BAD DEBT ON 31/3/99. THE LAST PAYMENT FROM PARTY THROUGH PR OPER BANKING WAS RECEIVED ON 26/11/1996. ALL THE EVIDENCES ARE ENC LOSED 5. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. THE REPLY FILED BEFORE THE AO AND DETA ILS SUBMITTED ALONG WITH LETTER DATED 15/10/2008, CLEARLY ESTABLISH THE CLAIM OF TH E ASSESSEE THAT THE BAD DEBT WRITTEN OFF BY THE ASSESSEE WAS IN RESPECT OF BILLS ISSUED BY THE ASSESSEE TO THE SAID PARTY. IN THIS VIEW OF THE SITUATION, WE ARE OF THE OPINION THAT THE CLAIM OF THE ASSESSEE OF A SUM OF RS.1,90,971/-, WHICH IS WR ITTEN OFF IN THE YEAR UNDER CONSIDERATION IS ALLOWABLE AND ADDITION TO THAT EXT ENT IS DELETED. GROUND NO.4 IS PARTLY ALLOWED IN THE MANNER AFORESAID. 6. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 03/04/2014 . / * -.# 0 1'2 03/04/2014 . * 3 SD/- SD/- (RAJENDRA) . . (I.P.BANSAL) /ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; 1' DATED 03/04/2014 . ' . .VM , SR. PS ./ I.T.A. NO.783/MUM/2011 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 1999-2000 6 / / / / * ** * '+4 '+4 '+4 '+4 54#+ 54#+ 54#+ 54#+ / COPY OF THE ORDER FORWARDED TO : 1. $& / THE APPELLANT 2. '($& / THE RESPONDENT. 3. 6 ( ) / THE CIT(A)- 4. 6 / CIT 5. 473 '+' , , / DR, ITAT, MUMBAI 6. 38 9 / GUARD FILE. /' /' /' /' / BY ORDER, (4+ '+ //TRUE COPY// : :: : / ; ; ; ; (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI